“Manipulating the money supply and interest rates rejects all the principles of the free market, and so it cannot be said that too free a market caused this mess (the 2008 financial crisis). The market was not free at all. It was manipulated and distorted…x`

…The market rate of interest provides crucial information for the smooth operation of the economy. A central bank setting interest rates is price-fixing and is a form of central economic planning. Price-fixing is a tool of socialism and destroys production. Central bankers, politicians, and bureaucrats can’t know what the proper rate should be. They lack the knowledge and are deceived by their own aggrandizement.”, Ron Paul, “End the Fed: Chapter 9, The Current Mess”, 2009

Part 1: Other Key Excerpts from Chapter 9: The Current Mess:

“Artificially low interest rates are achieved by inflating the money supply, and they penalize the thrifty and cheat those who save. They promote consumption and borrowing over savings and investing.”

“In 2008…the American people woke up to the reality that they have been living in a bubble economy that was now completely popping.”

“Many accusations were made about who was responsible for the downturn. It was argued, and still is, that it’s a reflection of the shortcomings of free-market capitalism.”

“Then-Secretary of the Treasury Henry Paulson simplified it by saying that the downturn in the housing market has caused all the trouble.”

“But…and this is crucial….focusing on the housing market alone was just the last of a parade of claims about the root problem. There were other sectors that have suffered, in finance, car manufacturing, services, retail, and stocks. These are all merely symptoms of a deeper problem: The Fed and its role in sustaining and unsustainable paper money system.”

“As current Treasury secretary Timothy Geithne said to PBS’s Charlie Rose: “But I would say there were three types of broad errors of policy, and policy both here and around the world. One was that monetary policy around the world was too loose too long. And that created this just huge boom in asset prices, money chasing risk. People trying to get a higher return. That was just overwhelmingly powerful.” Mr. Rose asked specifically: “It was too easy?” Mr. Geithner went on: “It was too easy, yes. In some ways less so here in the United States, but it was true globally. Real interest rates were very low for a long period of time.””

“Just as Henry Hazlitt and the other Austrian economists knew, in 1944, when the Bretton Woods system was established, that it would not last, many others knew from the beginning that the current system started on April 15, 1971, would also fail.”

“The current crisis, started in 2007, with the break in the housing mortgage market, is now in full swing and signifies the end of the fiat dollar reserve currency system. It is impossible to understand the current crisis without understanding the international monetary system, which has been dominated by our Federal Reserve.”

“The core of the contemporary problem dates from 2001 when the Fed attempted to forestall recession through low interest rates. Actual interest rates fell well below historical averages and any monetary rule that the Fed claimed to be following. Greenspan slashed the federal funds target from 6.5 percent in January 2001, down to 1 percent by June 2003. He held the rate at this level for a full year before ratcheting them up again to 5.25 percent in June of 2006, a move that popped the bubble he had earlier created.”

“The lower interest rates are creating no new capital; they are merely distorting the signals borrowers use to assess risk.”

“We should consider the political context of the time. The terrorist attacks on American soil had taken place, and the entire country was moving toward war frenzy. The idea then was we would not let terrorists beat us economically or politically…fine impulses but also conditions that led to stupid short-term decision making. Part of the drive of the Fed to inflate in the year following the attacks was to create an appearance that we as a nation had not been harmed in any way….that our economy was stronger than ever.”

“Sadly, Greenspan chose the wrong means to convey this message.”

“Everyone in those days was consumed by the drive to not let the terrorists win. Well, the Fed assisted in undermining the foundation of the structure of the American economy and, in the long run, did more damage to American prosperity than the attacks of 9/11.”

“I want to be clear here. The Fed’s policy was dreadfully malformed.”

“We’ve been through nearly a hundred years of this same repeating pattern…The problem isn’t with the choices made by central bankers. The problem is that they possess the power to make any choice at all. There is the additional problem that markets are forever having to guess what the Fed is going to do, which creates as historian Robert Higgs call “regime uncertainty.””

“Market forces are always working to correct mistakes made by individuals or government.”

“The post-Bretton Woods system has been challenged numerous times over the past thirty years, but the authorities have been able to reprime the monetary pump, distract the masses, and keep it from deflating and correcting the errors inherent in central bank economic planning.”

“Instability was already apparent in 1987, with a sharp stock market correction called a crash. The Fed reinflated and restored confidence in a broken system. No final payment was extracted for the inflation that has gone on since 1971.”

“The savings and loan crisis of the 1980s was another effort of the marketplace to rectify the mistakes inherent in the system. Debt, to some degree, was liquidated, but as there were no significant changes in policy the country and the Federal Reserve went back to their old ways, with even more inflation than before.”

“Japan’s market has never adequately recovered from its 1990s slump because it prevented liquidation of bad debt held by the banks. Throughout the 1990s in the United States, the market was arguing for liquidation of debt and elimination of gross malinvestment. But our recessions, the Asian crisis, as well as the Russian crisis were papered over with more inflation. Even the failure of Long-Term Capital Management in 1999 was barely a blip on the economic radar screen.”

“The collapse of the stock market bubble in 2000, especially the bursting of the NASDAQ bubble, was the beginning of the current crisis, although many want to date the onset in 2007 when the mortgage crisis became obvious…..The massive inflation that was directed into housing was designed to make people feel better, and consumers once again were enticed to continue their spending spree by borrowing again their home equities, driven up at least nominally by inflationary expectations.”

“But prosperity can never be achieved by cheap credit. If that were so, no one would have to work for a living. Inflated prices only deceive on into believing that real wealth has been created. But easy come, easy go. It is fun when the bubbles are forming and many can live beyond their means; it’s a different story when they’re forced to live beneath their means in order to pay for their extravagance. Like an individual, a whole nation must accept a decrease in the standard of living if the debt-inflationary system finances an illusion of wealth.”

“Although the Fed was primarily responsible for the financial bubbles, the malinvestment, and the excessive debt, other policies significantly contributed to the distortions that had to be corrected. Artificially low rates of interest orchestrated by the Fed induced investors, savers, borrowers, and consumers to misjudge what was going on. Multiple mistakes were made.”

“The apparent prosperity based on the illusion of such wealth and savings led to misdirected and excessive use of capital. The false information generated by the Federal Reserve policy led to a false confidence that all would be well. This illusion is referred to as moral hazard.”

“They (“progressives” who are aligned with libertarians on many issues like restraining the Fed, but make an exception for personal economic decisions) recognize the right to decide for ourselves what our social and religious values are to be, though they do not understand that it is the same right as the right to decide how to spend our money, enter into any voluntary economic contract, and reject any economic association we please.”

“It is bewildering to see some people strongly and correctly want to keep the government out of all social, religious, and intellectual decisions, yet also assuming for some reason that the average citizen cannot exist without central economic planning regulating our every move. It’s this inconsistency that allows institutions like the Federal Reserve to gain power over money and credit and, unfortunately, over the entire economy.”

“Once it’s assumed, as has been the case for decades, that government must protect all citizens against their own actions and compensate them for any harm done, the floodgates of preemptive regulations and uncontrolled prior restraint are opened.”

“Much has been said about the subprime loans encouraged by government regulations made over the decades before the housing bubble burst, but one could argue that all loans that come from credit created out of thin air have an element of being subprime, making them a less than wise use of capital. This is why the euphoria during the boom is excessive, but only on the bust side is it found to be excessive and devastating. The risky loans were pervasive while the financial structure was being built without a foundation.

“Those who did not see it coming, and still don’t understand why it has occurred, are unaware of how the market works. They are in denial of the shortcomings of the Fed’s monetary policy. The world economy cannot be rescued by the same people, or their philosophy, which brought the havoc upon us.”

“Inflation is the most vicious and regressive of all forms of taxation. It is the absolute enemy of the workingman. It transfers wealth from the middle class to the privileged rich. It is responsible for recessions and depressions. It’s deceptive, addictive, and causes delusions of grandeur with regards to wealth and knowledge.”